The SBA and Treasury released late Friday evening the long-awaited application to apply for forgiveness of a Paycheck Protection Program (PPP) loan. They also announced they will soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.

The form and instructions tell borrowers how to apply for forgiveness of their PPP loans, consistent with the CARES Act. The forgiveness application must be filed by October 31, 2020.

What Is Included in the Application?

The 11 pages of the application and instructions have the following components:

PPP Loan Forgiveness Calculation Form

PPP Schedule A

PPP Schedule A Worksheet

PPP Borrower Demographic Information Form (Optional)

All borrowers must submit the PPP Loan Forgiveness Calculation Form and the PPP Schedule A to their lender.

Highlights of the Application and Instructions

The SBA said its form and instructions are designed to reduce compliance burdens and simplify the process for borrowers. They include:

Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles, if biweekly or more frequent.

Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan, which gives clarity on cost paid and incurred.

Payroll costs are considered paid on the day paychecks are distributed or the borrower originates an ACH credit transaction.

Payroll costs are considered incurred on the day the employee’s pay is earned.

Payroll costs incurred but not paid during the borrower’s last pay period of the covered period (or alternative payroll covered period) are eligible for forgiveness if paid on or before the next regular payroll date.

An eligible non-payroll cost must be paid during the covered period or incurred and paid on or before the next regular billing date, even if the billing date is after the covered period.

Clarity on using 2019 compensation for self-employed individuals or partners in a partnership.

Does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner; capped at $15,385 per individual or the actual amount paid to them during the eight week period, whichever is lower.

The authorized representative of the borrower is required to sign off on the borrower’s eligibility for loan forgiveness, which will be evaluated in accordance with the PPP regulations and guidance issued by SBA through the date of this application, which would be the date it’s signed and submitted.

Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness.

Clarification on using an employee’s average annual salary or hourly wage between January 1, 2020, and March 31, 2020, for purposes of the salary/hourly wage reduction test to confirm it was at least 75% of the average during the covered period.

Confirmation that the full-time equivalency (FTE) calculation will use 40 hours or capped at 40 hours for those that work more.

A simplified method for calculating FTEs that assigns 1.0 for employees who work 40 hours or more per week, and 0.5 for employees who work fewer hours, may be used at the election of the borrower.

Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30.

Clarification that the June 30 rehire provision for the salary/hourly wage reduction test restores the salary or wage as of June 30, 2020.

Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined, but also includes employees that were fired for cause or voluntarily resigned or requested a reduction of their hours. In all of these cases though, they only should be included if the position was not filled by a new employee.

The borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request. This includes all records relating to the borrower’s PPP loan, including documentation:

Submitted with its PPP loan application.

Supporting the borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan.

An optional PPP borrower demographic information form requesting information about each borrower’s principals, including certain owners, managers and other stakeholders of the borrower.

Unanswered Questions and Potential Legislation

What we know for sure is that the SBA, along with Treasury’s guidance, will be issuing an Interim Final Rule that will include many of the issues discussed above — and likely a few curveballs. We know there are still unanswered questions, such as what is included in transportation payments under covered utilities. We also know, based on the current rules, a significant amount of PPP loan proceeds will not be forgiven for many businesses.

Congress on both sides of the aisle have been supporting additional legislation to make this program more beneficial to businesses that have been hurt the most by this pandemic. The HEROES Act passed by the house a few days ago included many changes to the PPP program. We expect the Senate to include several changes in their version once it is released. Unfortunately for PPP borrowers, it will most likely not make into law until well after their eight-week period is up. Keep in mind that Democrats and Republicans have both suggested flexibility of starting the eight-week period or increasing that period anywhere from 12 to 24 weeks. However, borrowers cannot plan on what-ifs, so follow the rules we have today knowing there could be a change down the road to further help your business.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.